Magazine

Indonesia: The Right Leader In A Time Of Trial?

January 23, 2005

The Jakarta aid summit on Jan. 6 was Soesilo Bambang Yudhoyono's moment. Ever since an earthquake and tsunami struck the rim of the Indian Ocean the day after Christmas, leaving more than 150,000 dead, the Indonesian President had gotten high marks for his actions. Regional and world leaders, including U.S. Secretary of State Colin Powell and U.N. Secretary General Kofi Annan, had gathered in Jakarta to coordinate the relief effort.

All gave Yudhoyono high praise -- not just for his response to the devastation on Sumatra, where 100,000 died, but for his overall performance since taking over the Indonesian leadership 10 weeks ago. "The tsunami was Yudhoyono's first big test," says Ray Jovanovich, head of Crédit Agricole Asset Management in Hong Kong and a longtime investor in Indonesia. "He has shown leadership, poise, and grace under extreme pressure."

$6 BILLION IN PLEDGES

For now, Yudhoyono and his government are preoccupied with providing food, water, and shelter to tens of thousands of refugees. Officials estimate that over the next three to five years, the government will need $2.5 billion to rebuild destroyed infrastructure and an additional $1 billion for relief and rehabilitation. A total of $6 billion has been pledged so far by developed nations to rebuild in the 10 affected countries, of which Indonesia should qualify for as much as $3.5 billion. How much will actually come through, however, is unknown: Past natural disasters in places such as Central America and Iran drew extravagant money pledges that were never fulfilled.

Whatever happens, the aftermath of the tsunami will affect Indonesian economics and politics for years to come. That represents both a burden and an opportunity for Yudhoyono's government. Nowhere is the opportunity more tantalizing than in Aceh, the province on the northern tip of Sumatra that saw some of the worst damage. Aceh, the locus of a bitter separatist civil conflict for decades, has been closed off to outsiders for years by the military. Now the cordon is broken. "We have thousands of foreign troops, aid workers, engineers, journalists in the area," says Leo Suryadinata, an Indonesia expert at the Institute of Southeast Asian Studies in Singapore. "The gates of Aceh have been thrown open, and it is going to be very difficult to go back." The hope is that the cooperation in distributing relief aid between the Indonesian government and the Acehnese rebels will lead to a cease-fire. But local military commanders are already trying to restore the status quo, which allowed them to go after the separatists without outside scrutiny. In mid-January they told international aid agencies in Aceh that they could only work without military escorts in the two main cities affected by the tsunami, Banda Aceh and Meulaboh.

LARGELY UNSCATHED

The Plaudits Yudhoyono has received for his handling of the tsunami crisis could serve him well in other spheres. His key advisers, led by Economic Coordinating Minister Abu Rizal Bakrie, are pushing for generous debt rescheduling from donor nations. Bakrie has said he wants to postpone payments on Indonesia's staggering $80 billion in foreign debt until early 2007, which would save the country some $3.2 billion in interest. So far, so good. On Jan. 12 the Paris Club of creditor nations approved an indefinite suspension of debt payments for Indonesia, Sri Lanka, and the Seychelles.

Luckily for Yudhoyono, the impact of the tsunami on the larger Indonesian economy is likely to be modest. Aceh accounts for just 2.1% of the $220 billion gross domestic product. The oil-and-gas sector, which makes up 52% of Aceh's economy, was largely unscathed. Despite the tsunami, Indonesia's economy is expected to grow 5.3% this year -- just slightly off estimates before Dec. 26. That's the highest growth since 1997. It has been fueled by a revival in manufacturing and construction, plus rapid expansion in consumer spending, much of it funded through bank credit.

Fast economic growth will allow Yudhoyono to proceed with an ambitious $72 billion plan that would, over five years, build and renovate highways, ports, airports, power plants, bridges, and water and sewage projects. Yudhoyono is hoping to win private backing, both local and foreign, for many of these projects. He has also promised reform in other areas, namely battling corruption and establishing an independent judiciary, and tackling antiquated labor laws that help keep unemployment high and manufacturing productivity low.

On some crucial reforms, the tsunami may hold Yudhoyono back. He had been preparing the public for a reduction of subsidies on cook-stove kerosene and oil, which cost the government $6 billion last year. "The last thing you want to do is burden the people with higher fuel prices when their homes or businesses or towns have been destroyed," says Suryadinata.

Getting any initiative adopted will be a challenge for Yudhoyono until he firms up political support. Despite a strong showing in the presidential election -- he defeated former President Megawati Sukarnoputri with 61% of the vote -- the former general's Democratic Party has less than 10% of seats in Parliament. Since his election, however, Yudhoyono and Vice-President Yusuf Kalla have been trying to cobble together a working majority. In December, Kalla scored a coup when he was narrowly elected the leader of the largest political party, Golkar -- once the political machine of dictator Suharto. Despite Kalla's takeover, however, it is unclear how much voting support he can count on from the faction-ridden party.

Yudhoyono will need solid backing in his assault on corruption. In the few months he has been in power, he has arrested one governor and several mayors on charges of malfeasance and dismissed a bevy of senior bureaucrats. The man leading the charge against corruption is Yudhoyono's handpicked Attorney General, Abdul Rahman Said, who has said he will spare no one in his effort to root out bribe-taking.

Is Yudhoyono the man who can lead Indonesia out of the political and economic swamp? It's too early to tell. "They say you need to judge a new leader on the basis of his first 100 days in office," says Anton Gunawan, an economist with Citigroup (C) in Jakarta. "But 35 of Yudhoyono's first 100 days will be spent dealing with the tsunami crisis." Still, his performance in that disaster offers reason for hope. A few years ago "the betting was not whether Indonesia would fall apart -- breaking into half a dozen island states -- but how soon," says Fauzi Ichsan, an economist with Standard Chartered Bank in Jakarta. Now, adds Citigroup's Gunawan, "a wind of change and optimism is blowing." How Indonesia's new President handles the aftermath of the great tsunami will determine whether that optimism is justified.